Oramed Can Benefit As MannKind Opens The Diabetes Market For Novel Drugs

| About: Oramed Pharmaceuticals (ORMP)


MannKind Corp.’s FDA panel approval for Afrezza can pave the way for greater physician acceptance of different ways to treat diabetes, ultimately benefitting Oramed.

The diabetes drug industry is filled with examples of how innovative drug classes achieved blockbuster status, albeit with drawbacks.

Although making definitive progress in a marketplace becoming more familiar with novelty, Oramed may still encounter resistance.

At current trading levels, Oramed shares are a small price to pay for significant upside potential.

A recent FDA panel recommended for approval an inhalable form of insulin made by MannKind Corp. (NASDAQ:MNKD) for both Type 1 and Type 2 diabetes amid strong votes from an outside team of experts, almost ensuring final marketing consent. With Afrezza, MannKind had met its endpoints and that was good enough for government work. There were lingering safety issues such as long-term lung tissue effects, but not onerous enough for the panel to decide benefits outweigh risks.

Along with this exciting development that has turned nearly every publishing pundit into an armchair endocrinologist, an important point is overlooked: novel drugs introduced into a disease category tend to unlock the market for others by paving the way to greater physician acceptance. This tendency, repeated numerous times in the past, should benefit Oramed Pharmaceuticals Inc. (NASDAQ:ORMP) as more general practitioners and specialists become comfortable with treating outside the standards of injected insulin.

Not intended to entirely replace insulin , Oramed's lead drug ORMD-0801would act as a complement to existing therapies, taken to reduce mealtime insulin doses, ultimately resulting in fewer daily injections. The drug's goal is to treat diabetics before a full insulin regimen becomes necessary.

ORMD-0801's benefit is direct delivery to the portal vein that acts as a conduit from the gastrointestinal tract to the liver, mimicking the same route traveled by pancreatic insulin. This avoids blood's exposure to insulin, as is the case with subcutaneous injections and inhalation into the lungs. The more natural route taken by orally-digested insulin can more greatly impact how much glucose is metabolized in the liver, allowing tighter control of blood glucose levels.

Oramed is focused: last February, it submitted a Phase IIa protocol to the FDA for Type 1 under its existing Investigational New Drug (IND) application that covers studies for both forms of diabetes. One month later, the first patient enrolled under a classic trial design - prospective, randomized, double-blind and placebo controlled. Twenty-four patients will receive ORMP-0801 and be observed for 10 days, in hopes of achieving important endpoints showing vital changes in blood glucose levels. According to the FDA, Phase IIa clinicals are considered more as pilot studies to determine efficacy than Phase IIbs, which are better-controlled and more rigorous - hence, the smaller size of Oramed's trial.

Also in March, Oramed announced plans to detail safety results from its completed Phase IIa with ORMP-0801 in Type 2s. Early indications showed the drug to be well-tolerated when combined with subcutaneous injections of insulin, as per standard treatments. The company will be presenting at the 2014 GTC Diabetes Summit taking place from April 23rd-25th, in Boston, during the "New Therapeutic Targets for Diabetes" session. The summit joins together150 participants from industry, government, venture capital, and academia and is known as a showcase for the latest in diabetes innovation.

History shows that blockbuster drugs trigger research and development of compounds of the same class, or entirely new ones. Abandoning old tools for something new is evident in a number of diseases, and diabetes is no exception. In 1999, marketing approval was granted for Avandia, in a new class of oral drugs known as the thiazolidinediones ((TZDs)), made by GlaxoSmithKline plc (NYSE:GSK) for balancing blood glucose levels in Type 2 diabetics. As a therapeutic challenge to Eli Lilly's (NYSE:LLY) Humalog, on the market since 1996, Avandia built sales to $3.2 billion, and at its peak became known as the world's best-selling Type 2 treatment.

Shortly after Avandia's approval, Lilly, in conjunction with Takeda Pharmaceutical Co. (OTCPK:TKPYY) began marketing Actos, another oral TZD to control blood sugar in Type 2s. With doctors and their diabetic patients inured to a new form of treatment, sales escalated. Actos took its place alongside Avandia as one of the most prescribed medicines, racking up revenue of more than $16 billion during its branded tenure, before generic competition took over in 2012.

Encouraged by positive marketplace adoption and still seeking a better way to handle diabetes, pharmaceutical firms launched another new class of compounds, the glucagon-like peptide-1 agonists, or GLP-1s, drugs to help delay the progression of Type 2. Byetta was first licensed by Amylin Pharmaceuticals and sold in conjunction with Lilly after approval in 2005. The twice-daily injectable was a godsend to diabetics who ordinarily administer insulin up to four times daily, and sales grew rapidly; in 2008, Lilly reported worldwide Byetta revenues of $751 million, its share of the joint arrangement with Amylin. That year, Byetta was prescribed to one million people in the US alone.

Not to be left out, Novo Nordisk A/S (NYSE:NVO) released in 2005 its hugely successful GLP-1 agonist Victoza, as a once-daily injection for Type 2 diabetes. Sales grew 160% in the second year of marketing, topping $1 billion. The next approval in this drug class may be to GlaxoSmithKline for Eperzan, which has received the EU nod for Type 2 and awaits an FDA decision, expected this month.

Enjoying a first-to-market advantage, Merck & Co's (NYSE:MRK) orally-administered Januvia for Type 2, another new class called the dipeptidyl peptidase ((DPP-4)) inhibitors that regulate blood sugar through multiple biochemical pathways, was approved in 2006 and reached global sales of $5.7 billion within the first six years on the market, driven by fast acceptance from doctors here and in Japan.

Far from miracle drugs, these compounds in their separate classes have all carried a greater-than-average degree of risk. The GLP-1s are suspected of unhealthy effects on the pancreas. Victoza produces thyroid tumors in mice. Fear of bladder cancer after long-term use of the TZDs had caused a number of countries, including Canada and Japan, to halt sales of Actos. Avandia's risk of cardiovascular events forced the FDA to mandate a strong warning label on the drug and eventually led to its withdrawal in Europe in 2010. Even the DPP-4s are not immune: last year the FDA began scrutinizing Januvia after patients hospitalized with pancreatitis were twice as likely to be on Januvia than those diabetics not suffering from the inflammatory condition.

The next big thing for diabetics are the sodium glucose cotransporter2 ((SGLT2)) drugs, or the 'flozins', judged by Johns Hopkins as a "paradigm shift" that stops glucose from being reabsorbed by the kidneys as opposed to trying to control the supply of glucose in the body. Johnson & Johnson (NYSE:JNJ) is first with Invokana, a once-daily tablet for Type 2 diabetics, approved in March 2013. However, serious side effects such as an elevated risk of stroke were seen in clinical trials. Analysts predict strong sales: $240 million in its first year of marketing, growing to $630 million by 2017. Bristol-Myers, in league with AstraZeneca PLC (NYSE:AZN) is also after the flozin market and recently got approval for oral Farxiga for Type 2, with contra-indications on the label. Only time and after-market surveillance will tell if the flozins are the magic bullets they are predicted to be.

Another developer of oral insulin, one of substantial size, could facilitate market acceptance more quickly and pave a more definite pathway for Oramed. Although Novo Nordisk is leading that effort and believes oral insulin represents the next generation of diabetic care, company officials have made no secret that the project will take a decade to reach fruition, if at all, with an investment of billions of dollars. As the industry tracks Novo Nordisk's progress, however, Oramed can benefit from its competitor's media exposure.

Oramed shares have been highly volatile in recent months, and investors considering purchase of the shares should be alert to unsubstantiated price swings. Showing efficacy of ORMP-0801 remains a strong risk because good results in early trials do not guarantee success later on. Medical acceptance, though improving with the advent of each new diabetes treatment, is always a wild card; physicians err on the side of conservatism when their referral base is at stake. Despite Oramed's ability to raise cash as shown from recent funding efforts, ongoing studies are expensive and may strain resources. Oramed is a micro-cap stock and although its market capitalization is over $100 million, adequate liquidity may not always be present.

Diabetes medicine, at its estimated $37 billion market size, eclipses the powerful 'statin' industry where lipid-reducing drugs for high cholesterol boast revenues of $20 billion, and with revenues of $12 billion. With each new regulatory milestone, Oramed comes closer to participating in a growing field that has become accustomed to embracing novel medicine. At their current price, shares offer the rich promise of potentially high returns at a diminishing risk.

Disclosure: I am long ORMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.